Is A Modification Offer An Enforceable Contract? Appellate Court Says Yes!

Almost every real estate investor who buys short sales or pre-foreclosures has heard this story a hundred times. A homeowner requests a loan modification from the bank, the bank grants a “temporary” modification, payments were made and accepted, then bank changes its mind and forecloses on the homeowner for not making the full, original mortgage payment. It has been happening every day since the economic crisis began, leading millions of homeowners into foreclosure. This was business as usual for years, until a recent appellate court ruling that modification offers are in fact enforceable contracts that must be honored by the banks.

In this case, Wells Fargo offered a temporary modification to a homeowner. The offer was accepted, and the trial payments were all made and accepted. Wells Fargo then disavowed the modification settlement under the claim that it lacked consideration. Wells Fargo then went ahead with the foreclosure. The trial court ruled that Wells Fargo was correct by saying that there was no consideration. The appellate court reversed that ruling, declaring that there was more than enough consideration. This ruling has led to hundreds of cases in which trial and appellate courts have enforced the modification agreements ignored by banks.

This is a hugely exciting ruling for homeowners. The allegations of impropriety regarding loan modifications at the banks have been public for years and some are especially egregious. A former employee of a loan servicing company owned by Goldman Sachs alleged that the company went through periodic sweeps of loan mod denials simply to clear up the backlog of homeowners. Five former Bank of America employees claim they were told to lie and tell homeowners the bank had not received documents it had requested. If the bank admitted that they had the paperwork, they were legally required to begin the underwriting process within 30 days, which would require taking on more staff. Instead, the bank lied about receiving the documents and encouraged employees to refer homeowners for foreclosure. A former senior collector even claimed that Bank of America gave employees a $500 bonus if they put enough homes into foreclosure in a given month. Finally, these allegations are being taken seriously and are gaining traction in the courts.

Fortunately for homeowners and real estate investors alike, the public as well as the courts are starting to wise up to the fraud committed by the major banks. But how is this news supposed to help real estate investors make money? As the tides turn in our favor, the banks are being forced to negotiate on our terms. No more begging the banks to accept our short sale and REO offers only to have them demand ridiculously high prices. We can now get the banks to the table and demand deep discounts on defaulted or underwater notes.

By buying defaulted and/or underwater notes at a discount, real estate investors are able to help homeowners move on from a horrible situation. The homeowner walks away from a boat-anchor property, and you pick up a home at a deep discount with virtually every exit strategy available to you.

This is a massive opportunity for real estate investors. If you know of anyone with a defaulted or underwater note, you need to get in contact with my office immediately at (706)-485-0162. I have spent the last two years building up a team of experienced attorneys and fraud examiners/forensic auditors who specialize in exposing fraud committed in the mortgage process and using that fraud as leverage to negotiate the sale of notes.

Since we assembled our team, we have not had a single deal rejected. We have a huge opportunity to help homeowners and do some great deals with multiple exit strategies. Even if the homeowner has already been foreclosed on, we still may be able to help.